Corporate welfare

Is it the role of government to subsidise aircraft manufacture? I think not, but why not let people decide? This article gives the EU's views on subsidies to Boeing and Airbus. It says that planned subsidies for Boeing's 787 [formerly 7E7] from Washington State amount to $3.2 billion, from Kansas $0.5 billion, and Oklahoma $0.35 billion. Of course the EU also gives comparable quantities of 'launch aid' to its Airbus builders. Direct subsidies are not the only way in which government supports big business: import barriers to protect favoured industries are another, as is over-regulation. What they have in common is that they are rarely voted for directly by the people that pay for them. In fact, they often conflict with objectives that real people would choose for themselves. Government and big business can get away with this mutual support arrangement because we have come to accept that policymaking be based on funding programmes or institutions, or on undertaking activities. A Social Policy Bond regime would take as its starting point outcomes. People might choose to elect a government that declares wealthier corporations to be its policy objective, but I suspect that most would vote for better basic health and education outcomes, lower crime and unemployment, and a cleaner environment.

Third world hunger

A report sponsored by the United Nations, and overseen by Jeffrey Sachs, urges rich countries to spend more on cutting hunger and poverty in the developing world. An article about it appeared (online only) on The Economist website. The online edition of this week's Economist has published my reaction:

Eradicating poverty

SIR - There is more intellectual grunt devoted to marketing a single new laundry product than there is to eradicating poverty in the third world (“Whatever it takes”, Economist.com, January 17th). More money may be necessary, but it will not be sufficient unless it harnesses the ingenuity of diverse, responsive minds and is tied to achieving explicit, verifiable outcomes that are meaningful to real people.

My suggestion is that the rich world auctions freely tradeable bonds that would become redeemable only when a specified social objective has been achieved. These objectives could include conflict reduction, increases in basic literacy, and reductions in disease and hunger. By contracting out the achievement of poverty reduction to the private sector, such bonds would inextricably link rewards to outcomes rather than inputs, outputs, activities or institutions; and they would inject the market's incentives and efficiencies into the eradication of third-world poverty.

Ronnie Horesh
Wellington, New Zealand

Anything but outcomes

"[T]he essence of leadership has changed into something that is less and less about significant undertakings and more and more about dramatic stunts." Christopher Caldwell, The Triumph of Gesture Politics, New York Times, 23 January 2005.

What drives policymaking? Extreme distance between consumption and production is a defining feature of a developed economy. Corporate bodies, whether government or private sector, subsidise the infrastructure that promotes this separation. They also benefit from it, not least because it means that the effects of a policy are difficult to trace back to their cause. Indeed, the relationships between cause and effect are so obscure that politicians can seldom be judged by the outcomes of their policies. Ideology, the reception given to spending announcements, celebrity endorsement, or the dramatic stunts of gesture politics - anything but outcomes - increasingly dictate which policies shall be undertaken.

This naturally generates cynicism about politics and a worrying disengagement from the political process. Social Policy Bonds would make a policy's goals explicit from the outset. Doing so, they would draw natural persons, as distinct from corporate bodies, into the policymaking process, helping to close the gap between policymakers and the public.

Dark Age Ahead

"Not TV or illegal drugs, but the automobile has been the chief destroyer of American communities ... One can drive today for miles through American suburbs and never glimpse a human being on foot in a public space, a human being outside a car or a truck ... While people possess a community, they usually understand that they can't afford to lose it; but after it is lost, gradually even the memory of what was lost is lost. In miniature, this is the malady of Dark Ages." Jane Jacobs, Dark Age Ahead, Random House, New York, 2004.

Whenever I argue against car driving, motorists are quick to say that it represents market forces and freedom of choice. It doesn’t. The enthronement of the car in our societies is a result of government making decisions for us. The very high social and environmental costs of motoring are not paid by drivers. Oil extraction, refining and transport also exact a heavy environmental toll. Roads are built with taxpayer funds. Some argue that the funds extracted from road users exceed the costs of building and maintaining highways. Even if this were true, it ignores indirect costs. But the bigger point is that government, influenced by powerful corporate interests, has chosen to build roads; in doing so it has determined the type of society we live in. If we then find it impossible to live without roads, and too expensive or dangerous to travel in any other way, that is a result of government’s favouring a particular form of development. It is the essence of the anti-market approach. If people really want roads they should build them on their own initiative and negotiate compensation with those who suffer as a result of their preference.

What has all this to do with Social Policy Bonds? A bond regime would be entirely outcome-focused. It would aim to achieve outcomes that are meaningful to real people, as against corporate bodies. For natural persons, more transport is not an end in itself but a means to an end. As Jane Jacobs points out, many of the things that do matter to people are destroyed by road transport. Genuine markets, arising from the wishes and concerns of real people, would assign them more significance than the current consortium of big business and government.

'Death of Environmentalism'

...is the title of a long essay by Michael Shellenberger and Ted Nordhaus. It describes how the environmental movement in the US has lost ground over the past 30 years. Discussing climate change, the authors say that '[t]he problem is that once you identify something as the root cause, you have little reason to look for even deeper causes or connections with other root causes.'

My take: the article outlines what happens when social and environmental issues become detached from the concerns of natural persons, then politicised and 'owned' by corporate bodies that have only institutional goals - the prime one being self-perpetuation. Social Policy Bonds would correct this by subordinating all policy to explicit outcomes that are meaningful to real people.

There are arguments on both sides

It's always useful to have something credible to say at meetings when you've dozed off and wake up to find everyone staring at you expectantly, waiting for you to speak. Over the years I have found that 'it's not black or white, it's a continuum' can be helpful, while 'I think we should be looking at this holistically', has also become a reliable standby. Even more helpful is 'there are arguments on both sides'.

In an increasingly complex world, the links between a policy and its effect are ever more obscure. There are sufficient data to back up any hypothesis. Compelling evidence can usually be found in support of either side of a policy argument. Is the climate changing, and if so, why? Are genetically engineered foods good or bad for the environment? Does gun control mean fewer or more gun crimes? Will more military spending mean more security? On these and many more issues, thinking people are inundated with information, much of it contradictory. We rarely go through all the available argumentation and come to a reasoned conclusion. There simply isn't time. Very often, we select the information that suits our preconceived ideas. We might give more weight whatever side of an argument we hear first. Or we might believe proponents who are more charismatic.

A handy way of short-circuiting thorough analysis is to have an ideology. With a static set of preconceptions we don't need fully to engage with the issues, which would be time-consuming and probably inconclusive. Much easier to dismiss gun control because it interferes with our liberties. Or to believe that we ought to ban GM foods because of the precautionary principle. and if ideology doesn't supply a ready-made answer, very often the lobbying power of interested parties fills the gap.

Making policy like this is unscientific, inherently divisive and prone to corruption and manipulation. Yet there is a genuine problem, in that the world is complex, and in almost every case, there are valid arguments on both sides. Should we disbelieve evidence because it doesn't fit our prejudices, or because supporting research was funded by vested interests?

The temptation is to abdicate responsibility; to disengage from the political process, comforted by a vague feeling that crucial issues are up to the politicians to decide.

There is an alternative, and that is for policymakers to target outcomes, rather than activities. Rather than decide on how many police to employ, they should reward people for cutting crime however they do so. Rather than cut anthropogenic greenhouse gas emissions, they should reward the stabilising of the climate. Instead of subsidising arms manufacturers and selling lethal weaponry to whoever will pay for them, they should reward the achievement of peace.

Outcomes, in short, are a better driver for policy than ideology. Social Policy Bonds not only subordinate all policy to outcomes, but inject market incentives into the achievement of our social and environmental goals. And because there is wider consensus over outcomes than over the means of achieving them, they will draw more people and more expertise into the policymaking process.

Outcomes for whom?

Social Policy Bonds are intended to subordinate all policy to the achievement of social and environmental outcomes that are meaningful to real people. The qualification is important: in the absence of any explicit targeted outcomes, policies and programmes will inevitably favour activities or existing institutions. Which institutions? Government bodies themselves or private corporations. In such a political environment it is hardly surprising that in Germany, as recently revealed:

...top companies admitted that they have been topping up the salaries of hundreds of local and national politicians.

Would 'top' companies want to fund politicians whose goals were clear and meaningful to natural persons, as distinct from corporations? Probably not...but the important point is that it wouldn't really matter. Explicit, meaningful outcomes can be decided in full consultation with the public. But when there are no clear goals, only vague statements of intent, institutions with separate agendas and a proliferation of meaningless micro-targets, then it is no surprise that corporations try to influence policy and find it worthwhile to put policymakers on their payroll.

If Social Policy Bonds are so marvellous...

...why doesn't anyone issue them? After all, it is 15 years since I first presented the bond concept in a public forum. I have since given talks about it to numerous audiences; I have published articles, papers and books on the subject. I have spoken to senior politicians, economists and officials. Yet to my knowledge, not a single body has yet issued Social Policy Bonds for any social or environmental objective.

Initially I thought governments would be most interested in the bonds. They spend vast sums of money - around 40 per cent of national incomes - on social and environmental activities, so you might imagine, as I did, that they would be keen to try out any idea that could make their spending more cost-effective. I was probably naive. Governments, I now believe, are quite happy to pursue failed policies as long as these policies have been done before. Supporting a failed but conventional policy less risky to the aspiring politician or bureaucrat than supporting a new policy, even one that is far more likely to succeed. This is what happens when the people in government, invariably (in my experience) well-meaning and hard-working, are rewarded for carrying out activities rather than for achieving outcomes. Provided their programmes have been tried before, their careers are unlikely to suffer.

What about the private sector? I have tried to interest various philanthropic organisations, but not a single one has had the courtesy even to respond to my initial approach. Think-tanks and non-governmental organisations have been more forthcoming, and I have spoken to some of them and they have published my work. None, though, has taken the idea further. I suspect this is because Social Policy Bonds are a 'right wing' (market) way of achieving 'left wing' (social) goals. The right wing doesn't like any sort of intervention, while left wingers see the word 'markets' and run a mile. This is pure speculation on my part, of course.

I am, though, heartened by individuals who have seriously considered issuing their own Social Policy Bond issues for goals as diverse as open source software completion, voter registration and literacy in India and Pakistan. So far none of these has come to fruition, but I am hopeful that they might. If you are interested in issuing Social Policy Bonds for any social or environmental goal please leave a comment or email me directly via the address in my profile.

Who can issue Social Policy Bonds?

Who can issue Social Policy Bonds and when would Social Policy Bonds be better than alternatives?

Social Policy Bonds could be issued by anybody who genuinely wants to finance the achievement of social or environmental objectives.

• Government could issue Social Policy Bonds when it knows what it wants to achieve, but does not know how best to go about it;
• Philanthropic groups or individuals could issue Social Policy Bonds when they have a particular interest in a social problem that is being inadequately addressed.

When would Social Policy Bonds have the most marked advantages over conventional policy methods? There are four main criteria:

• The objective is fairly broad. So, for example, it is better to target broad health indicators like longevity, rather than the rate of heart disease. It is better to reduce water pollution in a river than the presence of one particular pollutant. This is because a bond regime should be free to channel resources where they will do the most good.
• There should be a reliable numerical measure (or combination of such measures) to target and it must be inextricably linked to what we want to achieve .
• Relationships between the problem we are trying to solve and its causes are complex, uncertain or changing constantly.
• Existing policies, if they have been tried at all, are ineffective or inefficient.